Stamp Duty Land Tax on Pharmacies
When looking to buy a new pharmacy, either by starting-up a new business or by acquiring a business through an asset purchase (as opposed to buying the shares in an existing company), there is bound to be a property transaction involved.
A pharmacy buyer will either be purchasing the freehold of the property, purchasing an existing leasehold (taking an assignment of a lease) or being granted a new lease by the freehold property owner. With all of these transactions, a purchaser will need to consider whether any Stamp Duty Land Tax (SDLT) may be payable to Her Majesty’s Revenue and Customs (HMRC) and whether a SDLT will need to filed with HMRC.
In freehold transactions or the purchase of an existing lease, SDLT will be payable on the purchase price plus any VAT. No SDLT is due on the first £150,000 of the price, 2% is then due on anything from £150,001 to £250,000 and 5% is due on any part of the price above £250,000.
If the transaction involves a new lease, the SDLT due will depend on whether the rent is an upfront premium or if there is an annual rent (or both, but this is unusual). SDLT on a lease with a premium is calculated in the same way as for a freehold transaction. To determine the amount of SDLT due on the annual rent, the pharmacist’s solicitor or accountant will first calculate the Net Present Value (NPV) of the rent. This will vary depending on the amount of rent paid in the first five years of the term and the length of the lease term. No SDLT will be payable on any NPV under £150,000, at a rate of 1% for NPV from £150,001 to £5,000,000 and at a rate of 2% on any portion of NPV over £5,000,000.
Pharmacists should also be aware that the amount of SDLT payable may be different where a purchaser is buying or leasing more than one property as part of a single transaction, as these may be linked transactions, and therefore the NPVs may be combined and only one £150,000 allowance will apply.
No SDLT return needs filing with HMRC if:
- there is an exemption applicable to the transaction. The most common exemption is that there is no chargeable consideration payable, but there are other, more obscure exemptions that a purchaser should investigate;
- the purchase price for the freehold or leasehold of more than seven years is less than £40,000;
- the premium on a new lease of more than seven years is less than £40,000 and the rent is less than £1,000 a year; or
- the new lease or a lease being assigned is for a term of less than seven years and the NPV is less than £150,000 (i.e. no SDLT would be due).
In all other cases, even if no SDLT is due, a SDLT return needs submitting to HMRC.
There are some reliefs from SDLT available and purchasers should investigate whether they could apply. Some of the more common SDLT reliefs are group relief, which applies if the purchaser is buying or leasing from a group company, or overlap relief, which applies if the purchaser is surrendering an existing lease and entering into a new lease of substantially the same premises.
Once the completion date for the transaction is set, a purchaser’s solicitor will need to draft the SDLT return, which will provide HMRC with all the details of the transaction, the parties and the property. Although a purchaser’s solicitor can assist with the completion of the SDLT return, the contents of the return is the purchaser’s sole responsibility and the solicitor must have their client’s authorisation to submit the return.
Once the deal has been completed (or substantially performed), there are only 14 days to submit the SDLT return and to pay the SDLT due without incurring penalties. Ideally a purchaser should have approved a SDLT return and provided their solicitor with the SDLT funds before completion, so that there is no delay. A fixed £100 fine applies for returns which are submitted up to three months late and a £200 fine applies for later returns. Interest at a current rate of 3.25% also applies to the SDLT and penalties due, and begins to accrue 30 days after the payment was due.
Please be aware that this article only applies to properties in England or Northern Ireland as Wales and Scotland each have their own devolved land tax. We would always advise that pharmacy purchasers take specialist legal and tax advice before entering into any agreement for the acquisition of property.
The above is a general overview and we recommend that independent legal advice is sought for your specific concerns. If you require further information in relation to the points raised in this article you should contact Charlotte Major, Solicitor and member of the Pharmacy Transactions Real Estate Team at Charles Russell Speechlys LLP on email@example.com.